Generally speaking, any credit score of 720 or above is considered excellent (although some sources put that number a little higher at 740). The best credit scores top out a perfect 850. On the other end of the scale, any score below 630 is considered worthy of concern.
If you’re in the low credit score range, this can create a hindrance to accomplishing certain milestones and activities in your life. A low score affects your ability to get approved for mortgages, car loans, and credit cards. It can restrict basic lifestyle needs like signing up for utilities. It can also bump up the interests rates you’ll pay.
No matter how you got there, poor credit takes time and effort to overcome. Fortunately, no credit score is permanent, and you can improve it over time. Understanding how you acquired your low credit score is key to knowing how to move forward.
How did I get a low score?
Common mistakes making late payments, skipping them altogether, or more serious offenses like defaulting on a loan, have the biggest impact on your credit score. Because 35 percent of your score is attributed to your payment history, any delay in payment takes a measurable toll on your credit.
Even though a score like 590 is probably due to a poor payment history, there could be other factors at play. For example, using too much of your total available credit — also called your credit utilization ratio — can strike points off your score. Applying for new credit too often can cause you to lose points, too. Or, if you’re brand new to building credit, your score could be in the low range for awhile, but hopefully rise over time with good habits.
Sometimes there are errors on consumer credit reports that could contribute to a low score. Information on one of your accounts may have been recorded wrong, or a mix-up could have happened between you and another person’s account. Unfortunately, these errors can languish for years without being noticed or corrected.
The only way to really know why your score is low is to check your credit report and take note of your past habits and mistakes, or any errors made by someone else. You’ll need to address all of these factors if you want to boost your score.
What can I do now?
Rebuilding your credit doesn’t happen overnight. But there are some important actions to take now to start improving your credit score:
- Check your credit report yearly: Promptly report any errors you notice to the credit bureaus. It’s their responsibility to address your dispute, fix mistakes and remove old information.
- Apply for a secured credit card: It’s hard to go through life without a credit card. A secured credit card is a viable way to rebuild credit if you don’t otherwise qualify for a regular credit card. You make a deposit upfront which then becomes your credit limit. If you miss a payment, the deposit acts as collateral and goes to the creditor. The good news is that most people can qualify for a secured credit card. There are also lots of secured card options these days that don’t stick you with harsh terms and conditions or annual fees.
- Make small purchases with your card and pay off your balance in full every month: Contrary to popular belief, you don’t need to carry a balance or pay interest to build credit. What you want to show is the ability to pay on time and to keep your credit utilization ratio low, if not zero. This means you shouldn’t rush out and buy an expensive TV that will take you several months to pay off. Instead, pay for minor expenses you know you can afford to pay off in full. That way you can avoid paying interest over and above the cost of the service or item.
- Find ways to reduce your debt — Although debt is not a direct determinant of your credit score, it does affect your overall financial well-being. Carrying too much debt can inhibit your ability to pay for recurring bills and daily expenses. Over time, financial issues can pile up, making it more likely to get behind on payments and damage your credit. You can help reduce your debt faster by cutting out non-essential expenses or getting a second job to earn more income.
What’s the minimum credit score I need to get a loan?
The minimum credit score — or cutoff score — to get a loan varies depending on the type of loan.
To qualify for a mortgage, you usually need a credit score of 620 to 640. But the Federal Housing Administration (FHA) helps low credit score home buyers by accepting lower minimum scores. This year, you need a minimum score of 580 to be eligible for an FHA loan with a 3.5 percent down payment. If you have a score of at least 500, you’re required to put 10 percent down, but are still eligible for a loan. However, a score below 500 makes you no longer eligible for an FHA loan.
A car loan is different. According to NerdWallet, there is no minimum credit score you need to buy a car. In fact, Experian Information Solutions claims that 20 percent of car loans go to people with credit scores below 600. This doesn’t mean that you won’t be penalized financially for buying a car with a 590 score. The interest rates you’ll have to pay will likely be in the double digits. You may also have to bring in pay stubs to prove income and document your history of paying bills on time. You may even need a substantial down payment in order to get financing.
If you have a low credit score, you need to find the best credit repair service to help. Professional credit repair experts can review your credit report and address any issues to give you a better chance of qualifying for a loan in the future.
Carry on the conversation on our social media platforms. Like and follow us on Facebook and leave us a tweet on Twitter.
